Tuesday, July 16, 2013

Land trusts as a model to protect farm lands

Among the people that are afraid we are losing our farmland, there is a move to use land trusts as a way to ensure that land is kept for agriculture.   The best example I know of is Madrona Farm in Victoria.   While the idea of using land trusts as a way to protect land for agriculture is innovative, it has some major problems.
  1. Farm land costs a lot of money
  2. Farmers need some asset as security for capital investments
  3. Farms have major cash flow problems
  4. Farmers need the freedom to plan for the long term
  5. Land trusts are not as safe or secure as people think
1) Farm Land is expensive
100 acres of prime farm land in the Okanagan will set you back $5,000.000 to $6,000,000.   The largest land trust in Canada is Ducks Unlimited which focuses wetlands for waterfowl.   The largest land trust that could be in the business of buying up agricultural land is the Nature Conservancy of Canada which has an annual income of $70,000,000 or so per year to buy land, most of this is intended for critical wildlife habitat.

The Land Conservancy worked hard to raise the money to purchase Madrona Farm.  The amounts involved were not huge, $1,300,000 for the 27 acres - the owners donated $700,000.   It took huge amounts of effort to raise all the money needed to buy the land.   I am not convinced that there is much chance that a significant sized property could be saved with a land trust in this region.

2) Farmers need security for capital purchases
Farmers need assets to be able to access the capital they need to be able to farm.  A farm needs a lot equipment, as an example, buying a tractor is expensive and needs financing.  Farms also need buildings for storage.   A good fruit and vegetable operation really has to have a cold storage building.  Without an asset you can not borrow the money for farming capital projects.   Working without the equipment needed dramatically reduces the efficiency of the farm.  The land will produce less food while taking much more human effort.

It is not only capital that is needed for machinery, it is also needed for things like fruit trees.   Planting an acre of apple trees will cost you between $5,000 and $15,000 depending on type of tree and planting style.  It also takes a number of years before fruit trees are in full production.    A ten acre high density apple orchard costs about $150,000 to put in and takes three years till properly productive.  If you can not borrow against the land fruit trees, grapes and other long term perennial crops are impossible to develop.

3) Farming has cash flow problems
Farming also suffers from huge fluctuations in cash flow over the year.   100% of the income is between the end of June and the end of October - four and half months at best.   This means for the majority of the year there is no income but life still goes on.  You need an income to live and the farm has expenses all year round.

Farming means having to have a large line of credit to smooth out the cash flow problems which means you need a line of credit the equivalent to a year's income, even a small farm needs $100,000 to $200,000 to be sustainable.   To have a decent line of credit you need an asset to pledge that is worth enough and the only thing that could be is the land.

4) Farmers need to be able to be able to make long term decisions about the land
Farmers need the ability to make long term decisions and this means leases with few or no restrictions.  Realistically most Land Trusts are going not going to be open to any agriculture but only a specific narrow concept of what is agriculture.  A large scale composting facility is not likely going to be ok.  Leases with land trusts will be restricted.

The lease has to be long enough that the farmer can plan for decades down the road.  Putting in an orchard is a long term investment which only makes sense if you know you can benefit from it.   How long will the leases be for?   10 years?  20 years?  99 years?

5) Land Trusts are not as secure as people think
Land trusts can make mistakes and end up short of money.  The last couple of years at The Land Conservancy here in Victoria shows what can happen when things begin to go wrong.  At the end of the day all land trusts are private entities over which the public and government have no direct control

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